Principles of Nonprofit Investment Management - Commonfund

ResponsibilitiesOur first six principles have beenconcerned with the kinds of planning,processes, and controls essential to aneffective investment program. Theultimate issue is execution. And thatdepends on allocation of responsibilities– our seventh principle.While you have an array of investmentmanagement firms implementing yourplan, you must make sure that youhave a clear organizational structure fordecision making and oversight withinyour organization itself.To avoid slippage or confusion, responsibilitiesshould be spelled out in an“investment program responsibilities”document that should be part of theinvestment policy.Completeness and clarity are important.Let all players make suggestions.Who’s in charge? Who is responsiblefor risk management? Who for liaisonwith the investment managers? Who iskeeping an eye on investment costs?What do those individuals have to doto prove the success of their efforts?To whom do they report? How often?The answers, of course, depend on theparticular nonprofit and the talents ofits people. The difficulties you mightencounter are also quite individual.In allocating responsibilities, it isimportant to fully evaluate thestrengths and weaknesses of the entireorganization and develop a clearunderstanding of the resources neededfor each decision. This is particularlyimportant in setting priorities fordecision making to assure that themost important decision has thehighest level of resources.For a foundation, the founder orfounding family could pose an organizationaldifficulty. How much responsibilitydo they want to take? It should bespelled out in the document. The family’snatural authority could overhangthe structure of responsibilities you setup. Having family members participateactively in development of the responsibilitiesdocument could help achieveclarification of their own roles.The investment committee typicallyplays the key role. The latestCommonfund Benchmarks Studyindicates six members make up theaverage investment committee, somewhatmore among community foundations.In nearly half the nonprofitssurveyed, the investment committeehad members who were not trustees;among community foundations, 80percent included non-trustees.A diverse membership is desirable, butyou do want to have some memberswith investment knowledge andexperience. Among the committees ofa typical board, the investment committeedeals with the most complexand specialized subjects. Special expertiseis required, but so is commonsense and a variety of viewpoints.Experience suggests a few pointers foran effective investment committee:◆ Keep it small enough to allowdiscussion by all members.◆ Four or five meetings a year shouldbe enough.◆ When a decision seems too difficultto reach, try referring it to a subcommitteeor consult an outside expert.◆ Seek knowledge from your investmentmanagers and other outsideexperts.◆ Strive to maintain continuityof membership, attitudes, andphilosophies.◆ Keep your board informed.As in any group effort, the strengthand character of the people involvedmake the ultimate difference. We canassume that all responsible participantsunderstand the nonprofit’s mission andare committed to its fulfillment. Still,they have to make sure they know howto work together.- 29 -